Operator: Hello, and welcome to the Compass Group Half Year Results Call. Hosting today's call will be Dominic Blakemore, Group Chief Executive Officer. This call is being recorded, and following the opening remarks, you will have the opportunity to ask questions. [Operator Instructions] I would now like to turn the call over to Dominic Blakemore. Please go ahead.

Dominic Blakemore: Thank you, and good morning. As usual, I'm joined by Palmer, our CFO. We're very pleased with our half-year results. We've reached another milestone and we are now above 100% of 2019 revenue on a run-rate basis with two or three regions and four or five sectors now above 100%. We're capturing the growth opportunity with another period of record new business wins and record client retention, with growth now well-balanced across our regions and sectors.

Global inflationary pressures are impacting all of us and we expect it to further accelerate in half two and continue into the medium-term. However, we believe we have the tools to manage these challenges and we'll benefit from the tailwind it provides to outsourcing. Our business model is resilient in times of volatility and our balance footprint will continue to limit risk. Given both our strong performance in the first half and our confidence in the future, we are increasing our organic revenue growth guidance and commencing a share buyback program. And lastly a few words on Ukraine.

We've all been shocked and saddened by the tragic events unfolding there. While we have no operations in Ukraine, we're providing extensive humanitarian support. We've permanently exited our small business in Russia and have terminated all known Russian supplier arrangements around the world. The impact of this is fully recognized in our results. Thank you.

We will now open up to questions.

Operator: Thank you so much. [Operator Instructions] The first question is coming from the line of Jamie Rollo from Morgan Stanley. Your line is unmuted and you may go ahead.

Jamie Rollo: Thanks.

Good morning, everyone. Three questions, please. Just -- first of all, starting with costs. One of your competitors yesterday flagged a couple of items affecting gross margins. You've not mentioned today, those rates slower conversion back from cost-plus to P&L and also some off program procurement due to supply chain complexity as well.

I guess, we're not seeing those, but could you just talk a bit about whether you're perhaps seeing those issues, what's offsetting that? And perhaps more specifically, if we're exiting at 7% this year, is it fair to say that next year's margin should be at least 7%? And secondly on the business wins and the CapEx guide of 3.5% implies more like sort of 4.5% in the second half. Is that the new run rate with this higher pace of business wins? And if not, does that imply you're getting higher returns because you are winning clearly a lot more business at a similar CapEx level? And then just a quick one on, just on Brunel, the KPIs look excellent there, and clearly it shows what you could do both digital and delivery. Can you replicate that outside UK [indiscernible] into other verticals or the markets? Thank you very much.

Dominic Blakemore: Thank you, Jamie. Just fiercely scripting many questions.

If I go to Palmer for the questions on cost and CapEx and then come back to me on Brunel.

Palmer Brown: Sure. On the cost, the contract structures are gradually migrating back to our traditional proportions. So we are seeing a gradual migration from the heightened cost-plus that we've had over the last couple of years during the pandemic back to P&L as volumes continue to increase. Now within that, you are seeing heightened subsidy levels relative to pre-COVID.

So it's not purely an apples-to-apples, but it's a gradual conversion. And the implication, the read-through is, obviously, to the handling of inflation. When we look at it, we grew the cost-plus and the P&L contracts to consumers together, because they each give us the ability to handle inflation relatively nimbly. Cost-plus is obviously a direct pass-through. And then on the P&L basis, we have autonomy overpricing, so we can get pricing relatively nimbly.

Those two represent about 70% of our overall contract structures. Currently, the remaining 30% is in the fixed price category where we do have the ability to price. However, it's on a lagging basis, and therefore we're putting in a lot of time and investment to mitigate the impacts there. On your question on CapEx, we’re 2.6% in the half, 3.5% for the year. We still think it's the right number.

We don't see the model changing over time. It's just timing, and this year, I wouldn't read more into it than that. I will say that, if we have the ability to win more growth even more than we're doing now by spending more, we're not going to shy away from it. But currently, our model still holds.

Dominic Blakemore: Thanks, Palmer.

And just on Brunel, Jamie. I mean I think the principles of what we're doing at Brunel are equally applicable to most of our sectors and most of our geographies. So what are they? It's digital, it's prepay, it's cashless, it's scaling production in one location, it's producing to order not to batch sizes as we would previously have done, which reduces waste and increases efficiency. And I think all of those principles can be deployed across our sectors, whether it's B&I, it's defense, it's remote and even in sports and leisure as we see increasing use of digital, cashless and unattended. So we're very excited about the learnings that we've got there and in other parts of the business where we're deploying this.

[indiscernible]

Palmer Brown: Jamie, forgive me. You raised the point about margin heading into '23 as well. We are reiterating our margin guidance for the year, above 6% for the year, exiting around 7% and in that neighborhood. As it reads into '23, I think we just got to be cognizant of the overall environment. We've got heightened growth, which has the drag of the mobilization costs, as well as the progression of margin over the life cycle of the contracts, as well as the high inflationary environment.

As long as those two things are happening, our margin progression will be more paced. We still believe that we will get back to our pre-COVID margin level and certainly, we don't necessarily view that as a cap. We do think we'll get back to there, but it's a matter of time. Right now we're seeing the heightened growth opportunities in the marketplace. We're taking advantage of those.

We will continue to do that. It will drive overall profit and we think that's a better place for the company.

Jamie Rollo: Okay. And just to clarify on that. So if you're exiting at 7%, you're saying the pace of growth will clearly slow, but there is no reason why next year it should go back below 7%.

That's not what you're saying.

Dominic Blakemore: We would be disappointed if margin went backwards. We will be highly disappointed in that.

Jamie Rollo: Thank you very much.

Operator: Thank you for your questions.

And the next question is coming from the line of Bilal Aziz from UBS. Your line is unmuted and you may go ahead

Bilal Aziz: Good morning. Thank you for taking my questions. And three, hopefully, quick ones from my side, please. Firstly, just on the good new business wins, and clearly another big step-up sequentially.

And some of your peers have given a bit of quantification of where they think that could end up by the year-end, so any sense from yourself on progression on that number in the second half? And secondly, tied to that, your net new relative to 2019 is running at 4.4% [indiscernible] implication is that, the new business wins lingering now will continue to take that number higher. So any updated thoughts on how that lays in going forward, please? And then lastly, just on the margin side, appreciate all the commentary on inflation. You mentioned 30% of your contracts are fixed price, and give us a sense of the price gap versus the cost side in the first half, and how you expect that to trend going forward, please? Thank you.

Dominic Blakemore: I'm going to Palmer on the third question. In terms of the new business wins and step-up, yes, I think it's important to recognize that when we report record new wins and record retention, we're not yet seeing the full benefits of that within the P&L.

So with those forward-looking indicators, we would expect our net new win rate to improve further into the second half. How much further, we will talk to you in Q3. But from that sort of 4.5% 2019 comparison, we would expect to make more progress. In terms of absolutely new business wins, I think we won GBP550 million in the first half. That would be at the start point for the run rate on a full-year basis with a little bit of improvement.

And then on inflation. Palmer?

Palmer Brown: Yeah. In the first half we got about five points of pricing within our growth. Clearly, inflation has been running higher than that and we've been able to hold our margin consistent there. So between the mitigation impacts using our operational tools, menu flexibility, procurement opportunities and the like, coupled with the pricing we've been able to digest the inflation as well as the mobilization costs that are there.

So that's one half. We're cognizant that we will see continued inflation in the second half of the year, possibly at an accelerating pace. So we know that we certainly have to continue doing what we're doing and probably work even harder to continue the progression. But we have the capabilities to do it and are confident that we'll be able to handle things.

Bilal Aziz: Okay.

Thank you very much.

Operator: Thank you for your question. And the next question is coming from the line of Vicki Stern from Barclays. Your line is unmuted and you may go ahead

Vicki Stern: Good morning. Just firstly on the net new, the acceleration in signings.

How much of that you think is temporary helped by just the features at the moment, higher inflation, supply chain challenges and so on? And how much is sustainable or sort of driven by self-help coming through from the company? And sort of similar question really on the higher retention, is that a sustainable level of 95.8%? And then linked to that, you mentioned again in the press release that you think Compass should have faster revenue and profit growth in the future than in the past. If you can just sort of flesh again the thinking there. I mean, it used to be [46%] (ph) organic growth guide. Obviously, you're clearly seeing a step up in growth right now. But as we look into the future, how should we think about the future growth rate? And then just finally on B&I, you've obviously had a good recovery already in volumes that is still away of 2019 levels.

And you previously flagged, I think a group revenue headwind just sort of 3% to 4% perhaps from work from home effect. Just your latest thinking now around sort of that ultimate drag from work from home or indeed potentially mitigation of factory, other things you flagged by high penetration and so on? Thanks.

Dominic Blakemore: Yeah. Maybe if I take the first question and pass two and three to Palmer. On the first, yeah, I think there is few things going on there, Vicki.

Absolutely, we're seeing the benefit of sell help, most particularly outside of North America where for a while we've been working very hard on core processes, training, the right resourcing, the right focus on the market opportunities. And I think that's where we're being most rewarded right now. I think the second point to make is that, through COVID we sought to retain all of our sellers in all of our markets. And so we didn't really miss a beat on continuing sales processes. And I think that has rewarded us relatively and with our clients.

I think what's exciting is the pipeline that we reported at the end of last year. It looks as good now and into 2023. Our win rates have improved and we do believe that the market factors that you described, whether it's supply chain disruption, labor availability, inflation, we talk about digital, we talk about sustainability, you’d have seen in our presentation this morning, we think there is a long less now of attributes and requirement for outsourcing that we can really meet. And so, yes, look, I mean, we very much hope that all of those factors are sustainable. But I think it gives us confidence that in a great marketplace with huge opportunity we can sustainably perform better than we've done before.

And I think many of those apply to retention as well. I think if we can be demonstrating to our clients through the likes of a contract that we can address all of these issues for them and with them then I think that gives us a greater opportunity for retention. And we hope them way in which we dealt with some of the challenges through COVID and some of the challenges that we're now seeing has created greater goodwill and trust, which will mean that as we phase into some of these future challenges, then there is a degree of confidence in our ability to support our clients. When it comes to the model of revenue and profit growth, I think we're living in uncertain times down way. So I think it's very difficult to put a range of things in the near term.

We've seen 5% of pricing in the first half. Our historic level would have been 2%. So you simply add 3% to the old-growth rates. With 1, 1.5 points ahead of -- on net new business, you simply add, that's the old growth rates. We still got a 15% volume recovery opportunity.

How and when does that come through? I think if you take all of those in turn, it tells me that we're going to be at elevated levels of growth for a while, but I'm not sure we can put a range on that yet. We will do that when we feel confident. But I think what makes me, I guess, most excited is the opportunity for us to be at structurally higher levels of net new. So even if some of these -- I'm not going to say transitional, but maybe medium-term factors subside, we should have a right to be at higher levels of growth and we'll talk to you about that when we see a label.

Palmer Brown: On the B&I question, we are becoming increasingly confident that we're going to see a full recovery in B&I.

Looking at it on a revenue basis, so currently it's still by far the slowest sector to recover. It's really the only sector that's meaningfully below 2019 levels. It's around 83% or so. Currently, we did see a nice pick up in the quarter, which we were very pleased to see. But we're getting increasingly comfortable on the fact that it will recover.

However, it will look different than it did historically. So what we're seeing is a shift away from working more in the office on a prolonged basis. I think the data points we're seeing is that, it's gone from somewhere around 4.2 days’ work in the office, down to about 3.25 right now. That's still in a state of flux. We know many of our clients are wanting employees back in the office.

The war for talent is making it somewhat difficult at the moment. And we know a lot of clients have been big acquirers of real estate during the COVID downturn with plans to utilize that. What we're seeing is significant new business opportunities in B&I come from other avenues in terms of the new model. So, significant opportunities, new business wins on micro-markets, in pantry and free food offers. Even in the traditional cafes space, we're seeing revenues come back more quickly than populations are.

It gives effect to the higher participation levels that are happening there, the higher check averages, higher subsidy levels and the free food levels. So the net-net of it is, we do expect to see a full recovery on a revenue basis. However, when you peel the onion back, it will look a bit different than it has historically.

Vicki Stern: Very helpful. Thank you.

Sorry, just a quick follow-up on the retention. I think you used sort of set ceiling yourselves at 96% being the sort of optimal level. Just curious if that's still true because you're basically there already now.

Dominic Blakemore: Yeah. I mean, look, our retention levels in North America have been and are exceptional.

The opportunity has always been outside of North America, and that's really where we're seeing the step change. That point of improvement is really coming from -- the majority of it's coming from our performance outside of North America. I think there's still a way to go. I wouldn't put a ceiling on it. We will continue to eke out the marginal gains.

Vicki Stern: Thanks very much.

Operator: Thank you so much for your questions, Vicki. [Operator Instructions] The next question is coming from the line of Richard Clarke from Bernstein. Your line is unmuted and you may go ahead

Richard Clarke: Good morning. Thanks for taking my questions.

And three if I may. Just the first one on the buyback, maybe just some color on why you're going for a buyback here rather than the normal special dividend? And what maybe we can conclude on the M&A opportunities for announcing this now? Are those not quite as good as you'd hoped or are those still there? The second question, just on the comment that you believe that 15% of volume to come back, is not a calculation back to 2019 volumes or is that incorporating any changes in volume you have? And where are you expecting that to beat -- to hit that 7% margin number as you exit the year expecting quite a lot of recovery there? And then the third question, on the prepared remarks you talked about vending and delivery being on top of your classic GBP220 billion addressable market. So just wondering, I don't think I've heard you use that language of it being incremental before, so maybe if you can just talk about what is that opportunity, and how big could that be beyond the GBP220 billion you normally talk about?

Dominic Blakemore: I think I hand over on the first two to Palmer.

Palmer Brown: Okay. The buyback, we're looking at our performance over the COVID period, how we've recovered.

Our cash flows are getting back to the strong pre-COVID levels that we've enjoyed before our leverage at the half-year was down to 1.3 times. We had predicted that without any capital returns, we would be around 1 time to 1.1 times at the year-end. Keep in mind, that includes about 30 bps of accounting change from the lease accounting. So on an apples-to-apples basis, on a historical level it's less than one, obviously, fairly conservative. So, when we look at our overall capital allocation framework, we decided this was the right time to go forward.

Our cash generation we expect to increase as we go forward. With respect to the buyback versus the special dividend, I think at this level, at the GBP500 million over the second half of the year, and then just the flexibility and just the increasing preference that we're hearing, we decided that was the appropriate path to take. What it means on a go-forward basis, obviously, we'll continue to look at our overall framework as the -- sort of as the indicator on where to land. We're increasingly looking at M&A, we've been disciplined in the past. I think we're even more discipline now when you think about the macroeconomic environment that's there.

We've got to be pretty convinced about the opportunity for us to take advantage of M&A at the moment with everything that's on our operators currently. I think that's the reality. That said, if we have a very attractive opportunity, then we're going to take advantage of it. I think we've got the wherewithal to do that. Prior to COVID -- the three years prior to COVID, we returned, I think, it was GBP2.7 billion of capital to shareholders.

That's on top of a little over GBP1 billion of M&A that was done in that same period. As we look forward over the next three years, we expect stronger cash generation than we had historically. So obviously, that gives us a good bit of flexibility in decisions that we'll be facing going forward. In terms of the base volume yet to recover, we think it's somewhere around 15% based on a historical basis. It sort of goes back to the question just a second ago with Vicki to some degree.

So to what degree does that 15% come back or to what degree does some of that structurally impair, but perhaps takes on another form in respect of new business. I think what we're trying to show here is that, we've got still a significant portion of our business that we're currently not operating. And while B&I is the largest piece of that, we're seeing it on all sectors. So healthcare retail is still significantly closed, we're seeing the backlog of the medical procedures, we're seeing sports and leisure events that have been postponed or towards -- or things of that nature. So, we still have base volumes yet to recover across all sectors.

We can talk about whether the full 15% comes back or not, but regardless, I think it gives you some indication of the opportunity that’s there. What it means for the margin recovery is that, we do expect to see overhead leverage as we go forward. We do think there's natural leverage in this business as we grow. As volumes naturally come back and we do expect to see a nice drop through that will help that margin recovery. Again, it's really difficult to predict the pace of that recovery, both on the top and bottom line.

I'm not sure we’re that good to accurately predict it. But it will come and we're confident in that. And then, just as we said before, we're going to take advantage of the growth opportunities first and foremost.

Dominic Blakemore: Thanks, Palmer. And on the point which is about vending and delivery, we haven't quantified it, and -- but we do see an interesting opportunity in both of those areas as well as in support services where we've got great capability.

And in fact, I think we've now right-sized the portfolio, in support services we've got good businesses with good leaders and USPP that have flourished through the pandemic and are accretive to growth. And so we feel confident that there is an opportunity that which is outside of that food court. Secondly, within vending and delivery, I think we've looked at it previously as an alternative way of addressing the needs of our clients on-site. I think increasingly, we're seeing that there are other opportunities opening up. So whether it's the examples we've given in the past of serving SMEs in Dublin from a central production kitchen through a digitally enabled -- app enable delivery model, or whether it's the Brunel example where 30% of our volumes are being served outside through delivery, which would be incremental volume to us than we previously enjoyed.

So I think we see those increasing now as other drivers of opportunity which come from the innovations that we've been working on within our core food offer.

Richard Clarke: Thanks. If I could just ask a quick follow-up to your comment on the overheads that Palmer mentioned. I noticed in your slides, you had the reference 480,000 employees. If I go back to your 2019 reports, you had 100,000 more employees than that.

Is this a permanent change in the level of employment at Compass, or is there still some employment to come back as well as the revenues and the volumes recover?

Dominic Blakemore: Yeah. I think I think part of that is in the manner in which we do the calculation, because it's on an FTE basis, and therefore it's the period of time for which those employees will work with us. So the actual spot numbers would be higher and then the average will become higher as we go forward. That said, clearly, we are looking at greater levels of efficiency. It's one of the things we talked about through COVID and how we would introduce greater flexibility in recovery to be more flexible to volume volatility, which I think is really, really important.

And we will see a good deal of those employees come back as these volumes come back sustainably over time.

Richard Clarke: Okay. Thank you very much.

Operator: Thank you so much for your questions, Richard. The next question in the queue is coming from the line of Neil Tyler from Redburn.

Your line is unmuted and you may go ahead

Neil Tyler: Good morning. Thanks very much. And a couple left, please. A quick one to start with, I wonder if you could help split the uplift in your organic growth expectation between the various components as opposed faster recovery and additional price pass through and then the net new contribution. And then following on from that, Palmer you just sort of discussed the operating leverage that the business has demonstrated historically.

And I wonder if there's anything in the nature of the new wins and the shape of the services that you're providing, and this comes back to the point on the cost structure. And whether once things settle down into the new cadence of growth, is there any reason not to anticipate very similar operating leverage and therefore 20 basis points, 30 basis points of annual margin improvement on the back of that new growth trajectory? And then finally alongside that, just on the – back to the topic of new wins. Are there any individual either contracts or segments that you would able -- you're able to single out that's contributing more meaningfully to the uplift in the gross wins [indiscernible] and particularly thinking in Europe? Thank you

Dominic Blakemore: Again, let me pick up on the first question and then Palmer to the second and third. Just on that first point, I mean, I don't think we would quantify the drivers of the uplift. What I would do is, reassure you that this isn't about pricing.

If we were taking 5 points of pricing in the first half, we would expect the same and maybe a point or two more as we see higher inflation. We talked about the inflation in the first half being sort of six to seven. We expect that to get at high-single-digit. So we will see a bit more pricing, but it's a driver but not the driver of the revenue uplift. I think, more importantly, we are seeing a slightly stronger volume recovery.

We've talked about both B&I and education, we are responded better than we had anticipated, certainly post-Omicron and in the latter month of the second quarter. So there is an element of that. And then I talked earlier about net new accelerating in the second half as well. So I think it's -- again, what's pleasing is that the guidance upgrade we've given today on growth is broad based.

Palmer Brown: In terms of the new business wins and the impact that it has, there is really nothing new on the new business wins in terms of the types of contracts we're winning.

And we flagged previously the increased amount of wins from first time outsourcing that is continuing within this GBP2.5 billion over the last 12 months, about 45% of that is from first-time outsourcing. And just as Dominic mentioned earlier, it's a reflection of both the market dynamics that are in place, as well as the self-help that we've been utilizing. Which you've seen from us in the past and it's not rocket science. I mean there is a bit of a trade-off on the top line growth and the margin progression. So you've seen us invest a good bit of drop-through back into the top line to produce the growth rates that we've enjoyed historically.

They accelerated from 3% to 5% to 4% to 6% or just north of 6% in 2019 -- fiscal '21 when COVID's onset. So we sell that gradual progression. And when you look at the margin profile then, it was a modest margin profile, again, just focusing on the growth opportunity and the overall EBIT growth. We think that's the best shape and progression for the company. That's what you see us undertaking now and that's what we would continue to look for as we go forward.

Within the contract wins over the last 12 months and the first half. Again, the types of contracts, I don't think there is anything different there. They are broad-based across all sectors. We flagged a couple of big wins when we spoke at the end of the first quarter in sports and leisure and in B&I. You referenced the geographical dispersion.

We are very excited about that. Within the new business wins, the GBP2.5 billion was 20% increase from where we were a year ago. I think we're very pleased that we saw 15% growth from our North America business, which was one that clearly was operating well historically and that is accelerating. But we're really excited about what's happening outside of North America. We see 30% increase outside of North America.

The bulk of that within Europe, both within the UK and on the continent, and we're seeing nice new business wins coming out of APAC as well. So I think it's a reflection of all the self-help, the expansion of the growth mentality, take advantage of the opportunity that presents itself in the market, and we see that continuing. So we're really pleased with what we're seeing and we think that it can be sustainable.

Neil Tyler: Thank you. That's very helpful.

Operator: Thank you so much for your questions. [Operator instructions] The next question is coming from the line of Joe Thomas from HSBC. Your line is unmuted and you may go ahead

Joe Thomas: Good morning, and congratulations on the performance so far this year. Just a couple of questions if you wouldn't mind, please. Just thinking about the 30% organic growth guidance this year, given the strength of the performance in Q1 and going into Q2, I'm just wondering almost why you're limiting it to 30%? Is there something else that you're seeing? Is it perhaps reticence about the economy or something that means that you're not pushing that higher? That would be one question, please.

And also, could you just talk about what's happening to the smaller scale competitors in the sector? Operators used to talk a lot about that, there is an opportunity post-pandemic. Now not so much and it's more about first-time outsourcing. But I'm just wondering if you can get some more market share gains going through there? And then the final thing is, can you talk about the spread of margins within the business? I'm just thinking about those parts of the business that haven't come back, that’s contracts that where volumes remain low. How do you press the margins there and what's the dispersion? And what do you do about them? Thanks very much

Dominic Blakemore: Thanks, Joe. I'll do the first couple and then Palmer third.

Yeah, look, I think it's a significant upgrade today in our revenue guidance, and on the back, clearly, a very strong first half. You heard me say earlier, we expect a bit more strength in each of net new pricing and volume. You ask about -- and I think probably it’s very important just to remind everyone, we're lapping 35% growth in the second half of last year, there will be 20%, 25% growth in the second half of this year. So they're very significant comps and very significant growth on growth, even though the underlying base period was significantly affected by COVID. So look, I think we feel good with the guidance we've given today.

We'd like to think there's more opportunity, but we'll continue to work very hard and remain cautious. In terms of the economy, I think it's a point worth making. We may see a little bit of impact around the edges in the coming half. I think one point I think is very, very important and worth making is, where we've seen previous recessions, this is a business that has been pretty resilient. So we've been looking back post the global financial crisis and actually, our organic revenues at the worst or flat and then grew after that year.

The reason for that was, again, there was a great opportunity for net new business wins, incredible pressure on self-help, pressure on other operators. So whilst there was a volume impact, there was a great net new business opportunity. So we think that's another attribute of this business in times of economic difficulty. And then when we referenced sort of the smaller players in the industry, I mean, first of all, we are continuing to take share against all competitors in the industry. It's a smaller share of the pie than it was, but I believe in absolute terms, it's still growing.

I think we've just been sort of much more pleased with the first-time outsourcing opportunity because, of course, that comes with the opportunity for us to deliver the greatest benefit for our clients, the greatest opportunity to reduce costs and improve quality of service. So it is a great source of new business for us and tends to be stickier in the first couple of rebid moments if we've done a good job. That said, I'd stress, there are small players in industry that continue to do a fabulous job, very attractive great management team, super offers, lots of innovation. We love to see that and we love to think that they could be partners or acquisition targets in the future, and we can help them grow. On the flip side of that coin, I'm sure given all of the challenges that we're facing and Palmer referenced earlier, the huge operational effort that we face into, that our scale process allows us to get good outcomes on.

I'm sure there are others that will struggle with that and that becomes an opportunity for us to take share and remain one. And on the margins front?

Palmer Brown: Yeah. On -- the spread of the margins, we probably slice it a couple of ways. First of all, if you look at the individual sectors that are there, interestingly enough on a unit margin basis, our unit margins within each sector are fairly consistent with where they've been historically. So even within B&I, the unit margins are fairly consistent from what we've seen before.

Now, what we're seeing is the progression from the cost-plus contracts back to the P&L. We see the heightened subsidy levels that are there compared to where we were before. We're working with clients to try to reduce those subsidies. Our clients have a desire to do that. We think good partners help them achieve their desires.

We think we have the ability to do that. And I think we're doing that sensibly as the volumes recover there. But then I think you see that reflected in the unit margin. Where the drag occurs is just on the overhead. So we still have overhead that's a bit more heavily indexed versus the base volumes.

And so, when you have the lower volume that's there, that's what producing a bit of the drag. But on a unit margin basis, the economics are quite good, which to us, gives us a good feeling about what lies ahead. And then if we slice it a different way from a geographical perspective. You saw margin progression in North America, but a bit of margin regression within Europe and rest of world. The biggest impact of that on our overall numbers is, obviously, within Europe, and really there are few reasons for that.

One is, it is the slowest to recover of all the regions that are there when you look at the base volumes. You have heightened net new business, so you have a net new business within the half of 3.7%, that compares to historical levels of around 0.5%, so a significant increase there. And just as we've mentioned before, we like what we see and we think they are sustainable going forward. You've got government support that has waned over the first half of the year and is pretty much all gone away at this point. So that has had a bit of a drag as that waned away.

And clearly, in inflation and the impact that it's had coupled with the higher proportion of fixed-price contracts. So you've got a bit of the pricing drag that comes along with it. We expect all regions to progress margin in the second half. But hopefully, that gives you a flavor of how the margin profile works across the business.

Joe Thomas: All right.

Thank you.

Operator: Okay. Thank you for your questions, Joe. And the next question is coming from the line of Jaafar Mestari from BNP Paribas. Jaafar, you're unmuted and you may go ahead.

Jaafar Mestari: Hi. Good morning. I've got a couple on free cash flow and compensation, please. So with the free cash flow of GBP360 million this H1, GBP660 million last year, that’s over GBP1 billion in just 18 months. And your three-year LTIP has a cumulative three-year cash flow target of GBP1.2 billion to GBP1.5 billion.

So I just wanted to make sure I get this right. Are there any material adjustments to take into account? Or are you guaranteed to smash through that target? Or is there any scenario where you actually make such significant investments over the next 18 months that three-year free cash flow is indeed capped at GBP1.5 billion?

Dominic Blakemore: Jaafar, thank you. In terms of investments that we'll make in the businesses, as Palmer said today, we expect the run rate investments, particularly CapEx which would impact free cash flow to continue as the levels we've seen. So nothing significant on that score. I mean clearly, targets were set in a very, very uncertain environment.

We're clearly performing very strongly. We're recovering very strongly. Growth is very positive. As you heard Palmer say, we expect to see a significant uptick in cash going into the next year. And, of course, these are matters with Aramco who continue to exercise discretion on the quality of their performance.

Jaafar Mestari: Super. And I guess related to that discussion, but it looks like on the LTIP side, at least the free cash flow component is pretty much there in 18 months? And separately, last year your annual bonus was 99% awarded. Obviously, as you said, this reflects a very strong performance. But looking into full-year '23, is there a rationale for the Board here to now set even more stretching target this time with a little bit more visibility? I think 50% of your annual bonus is traditionally based on margins below, so can you -- and I was going to get away, which is probably the wrong expression, but can you get away with only 7% base improvement? Or is it the time to have very stretching targets in place?

Dominic Blakemore: Yeah. Jaafar, I think this is a matter for Aramco.

I mean, clearly, there are a number of different factors at play here as we sort to express today. I think what's most important for Compass is, we see the strongest possible EBIT growth, whether it comes from growth or margin, and the remuneration targets will need to reflect that in a way that it's positive and incentivize our teams, but also it is fair and realistic in terms of the market opportunity we have ahead of us. And I am absolutely certain that will be the made in challenge of our Board.

Jaafar Mestari: Thank you. That makes them.

Thank you very much.

Operator: Thank you for your questions, Jaafar. And the final question is coming from the line of Thomas Truckle from Jefferies. Your line is unmuted and you may go ahead

Thomas Truckle: Yes. Thank you, gentlemen, and congratulations on the strong risks.

I just had one, if I may. And just turning back to comments from the prelim results around expenditure per capita being elevated across education and sports and leisure, just thinking about volume terms for H1, is it still the case you've seen elevated per capita spend, or does that tail-off through Q1 and Q2? Thank you.

Dominic Blakemore: We have been seeing the higher per caps from consumers, the pent-up spending or revenge spend as some folks internally refer to it. That has been most pronounced in sports and leisure, but in other sectors as well where we have the consumer spending. That has continued throughout the first half into the second quarter.

We haven't seen any real impact from that yet. Now that being said, the overall environment is changing from an inflationary perspective to what degree that changes, consumer behavior going forward remains to be seen. But thus far we are still seeing the heightened spend in the per cap check averages

Thomas Truckle: Great. Thank you.

Operator: Thank you so much for your question.

I will now hand you back over to your host for concluding remarks.

Dominic Blakemore: Thank you very much. Thank you all for joining us today and your questions. We look forward to speaking to you at the Q3 results in July.